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Desperate-To-Hike Fed Admits "Inflation Is Not As Low As You Think"

Tyler Durden's picture




 

Following this morning's basic admission by Janet Yellen that "no matter what" The Fed is raising rates in December (which was then solemnly supported by an obedient Bill Dudley who "100% agrees with Yellen"), Fed Vice-Chair Stan Fischer, speaking tonight, reaffirmed this belief by, as we detailed previously, telling investors to ignore weak inflation. After San Fran Fed's Williams admission that "there's something going on here we don't understand," Fischer tonight admitted "US inflation is not as low as you think," at once contradicting Yellen's earlier comments and the various market-based measures, while confirming our previous detailed solving of the mystery of the hidden inflation.

Inflation Breakevens are collapsing...(longer-dated near record lows)

 

Inflation expectations are at a record low... and worse...

  • *CURTIN SAYS `DISINFLATIONARY MINDSET' IS TAKING HOLD

 

But all of that is wrong.. As Stan Fischer admitted tonight:

  • *FISCHER SAYS NOT MUCH EVIDENCE INFLATION MEASURE IS TOO LOW
  • *FED'S FISCHER SAYS HE BELIEVES WAGE GROWTH WILL COME BACK
  • *FISCHER SAYS U.S. INFLATION IS `NOT AS LOW AS YOU THINK'
  • *FISCHER SAYS FED IS NOT THAT FAR FROM 2% INFLATION TARGET

Wait, what!!??

Having now admitted that all of the above market-based (and survey-based) expectations (and current measures) of inflation are wrong, as we noted previously, depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system.

While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.

 

It is clear to us that the FOMC in its quest to maintain stability is breeding instability and that previous attempts at the same failed miserably with dire consequences for society. We are sure it is only a matter for time before it happens again.

And further seemingly confirmed that the real "hidden" inflation mystery - as we solved here - is in fact in the very heart of The Fed's wealth creation process: the U.S. transformation from a homeownership society, to one of renters.

From the latest, just released joint white paper by Harvard's Center for Housing Studies in conjunction with the Enterprise Resource Center, in which we read that the US rental crisis is about to get far worse. In fact, in an optimistic scenario in which rental inflation rises by 3% annually (it is currently far higher at 3.6%), while annual income growth is rising at a speed 2.0% (it is currently far lower in real terms) the number of severely cost burdened households - those who spend over half of their income on rent - will rise by over 25% over the next decade, from 11.8 million to a record 14.8 million households!

Which means that is using at least somewhat realistic assumptions, the real number of households who spend more than half of their income on rent will likely be in the upper teens if not 20s of millions by 2025.

From the report:

if current trends where rent gains outpace incomes continue, we find that for each 0.25 percentage point gain in rents relative to incomes, the number of severely cost-burdened renters will increase by about 400,000. Under the worst-case scenario of real rent gains of 1 percentage point higher than real income gains per year over the decade, the number of severely cost-burdened renters would reach 14.8 million by 2025, an increase of 25 percent above today’s levels.

More depressing details about the state of the US housing rental market:

At the time of the decennial census in 2000, one in five renters were severely cost burdened, paying more than half of their gross income for rent and utilities (Figure 2). Meanwhile, another 18 percent faced moderate cost burdens, spending between 30 and 50 percent of their income on housing costs, exceeding the widely accepted standard that housing should not command more than 30 percent of a household budget.3 This represented a slight improvement over the shares burdened in 1990 as income gains outpaced growth in rents.

And here is the punchline: "in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

And far from confirming the "bullish thesis" that Millennials will eventually move out of their parents basement and buy (or rent) their own housing while starting new households, just the opposite is taking place:

In 2015, 15.1 percent of  25 to 34 year olds were living with their parents, a fourth straight annual increase, according to an analysis of new Census Bureau data by the Population Reference Bureau in Washington. The proportion is the highest since at least 1960, according to demographer Mark Mather, associate vice president with PRB. "The phenomenon of young adults, facing their own financial challenges, forced to squeeze in the homes of their parents. And new data show the trend is getting worse, not better."

In conclusion, nowhere is the mystery of the "missing" inflation more obvious than in the following interactive map showing that in virtually all major seaboard metro areas, including the major cities in California, New York, and Florida, the number of households with a cost burden is 50% or higher.

 

 

As we concluded when addressing this mystery,

All of this could have been avoided if only the Fed has observed the "missing" and soaring rental inflation that was right in front of its nose all the time, and which it did everything in its power to ignore just so the 1% can keep their ZIRP (and soon NIRP)and QE, and become even wealthier on the back of the middle class and the 80 million of 25-34 year old Americans who have found out the hard way that not only is the American Dream of owning a home officially dead, it has been replaced with the American nightmare of completely unffordable renting.

*  *  *

And thus, The Fed is forced to entirely trounce its "data-dependent" bullshit in order that it can do whatever it wants... in this case, raise rates in order to perhaps slow the speculative bubble in housing (driving rental inflation) just enough (goldilocks-style) to turn the multi-year trend in homeownership around...the lowest in 48 years!

 

Or, perhaps more likely, show it can and to have the merest of ammunition when the current bubble bursts before resorting to QE-moar... because as Peter Schiff recently concluded,

If the Fed is unable to raise rates from zero, it will also be have no ability to cut them to fight the next recession. So the next time an economic downturn occurs (one may already be underway), the Fed will have to immediately launch the next round of QE. When QE4 proves just as ineffective as the last three rounds to create real economic growth, the Fed may have to consider the radical ideas now being contemplated by the Bank of Japan.
 
So this is the endgame of QE: Exploding debt, financial distortion, prolonged stagnation, recurring recession, and the eventual government takeover of industry and the economy. This appears to be the preferred alternative of politicians and bankers who simply refuse to let the free markets function the way they are supposed to.
 
If interest rates were never manipulated by central banks and QE had never been invented, the markets could have purged themselves years ago of the speculative bubbles and mal-investments. Sure we could have had a deeper recession, but it also could have been much shorter, and it could have been followed by a far more robust and sustainable recovery.
 
Instead Washington has joined Tokyo on the road to Leningrad.
 

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Wed, 11/04/2015 - 22:15 | 6751870 FreeShitter
FreeShitter's picture

In other words, zirp/qe/nirp until the pitchforks, torches, and guillotines are rolled the fuck out, othwerwise nothing changes.

Wed, 11/04/2015 - 22:25 | 6751929 kliguy38
kliguy38's picture

maybe things are worse than we've told you but since you swallowed our last load we couldn't help ourselves giving you another shot down your bunghole sheeple

Wed, 11/04/2015 - 22:59 | 6752065 BullyBearish
BullyBearish's picture

fed's #1 mandate: transfer wealth to their owners

fed's #2 mandate: remain in power to continue to transfer wealth to their owners

Thu, 11/05/2015 - 01:41 | 6752502 AGuy
AGuy's picture

The number may be further from zero, but with a minus sign in front. The US is "Shirley" (aka don't call me Shirley) in recession. Housing falling, Trucking collapsing, Exports collapsing, Imports falling, Pending layoff rising. No war to press for gov't spending, No new QE to goose the markets, Oil Bust, No gov't stimulious. Boomers retiring, Business outsourcing and automating, Expensive Health Insurance.

Yellen been "declaring" rates are absolutely going up, since she replace Bernanke. As Tuco said (The Good, The Bad & the Ugly). "If your gonna shoot, Shoot, don't talk."

Feds all talk and ZIRP in action. If Yellen was concerned about inflation, she could have raised the rate today. Why wait another month? unless there is no intention of ever raising them.

 

 

Wed, 11/04/2015 - 22:17 | 6751880 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Fuck it I'm done.

Thu, 11/05/2015 - 06:04 | 6752741 The Merovingian
The Merovingian's picture

Juncker said it best ... "When it becomes serious, you have to lie!"

The whole lot of them are pathological. When do we get to start using the pitchforks already?

Thu, 11/05/2015 - 06:14 | 6752755 Ghordius
Ghordius's picture

Juncker said something that would have made him a political pariah, in the US and other countries. Interestingly, it did not in his home country or on the european continent

I'd say this is a case of cultural differences. when he said that, we nodded, and agreed. my question is: did he lie, when he said it?

Thu, 11/05/2015 - 07:48 | 6752849 piratepiet2
piratepiet2's picture

"did he lie, when he said it?"

you mean that rhetorically ?

Thu, 11/05/2015 - 08:55 | 6752939 Give up. Realit...
Give up. Reality is not scientific nor even mathematical.'s picture

Though surely marvelously entertaining for a while, pitchforks never really provide societal relief.  Now shotguns however, these provide society with almost completely random killing and maiming on a much grander scale.  The shotgun is a remarkable weapon of real terror if properly used.  Of course some in society are pacifists.  But this faint-hearted misbelief is nothing that effective use of shotguns doesn't immediately ameliorate.  If those in a pacifist crowd aren't dispensed with in the initial series of blasts, they will almost universally quickly abandon any pretense of ingrained pacifism.   It's not the bodycount so much as it is the contagious nature of shotgun usage that makes the shotgun such an effective tool in society.  It lasts longer, provides more thoroughly impressive results and does not cost nearly as much a public education.

Thu, 11/05/2015 - 11:15 | 6753516 piratepiet2
piratepiet2's picture

like your style.  Have you considered a job at the NRA ?

Wed, 11/04/2015 - 22:17 | 6751884 logicalman
logicalman's picture

When 'Lie #1' seems likely to work, use 'Lie #1'

If not, try 'Lie #2' - unless 'Lie #3' seems more appropriate.

4, 5, 6 & more may come into play.

 

Wed, 11/04/2015 - 22:19 | 6751892 aliki
aliki's picture

inflation not as low as they think???

this only happens when someone on the fed doesn't teach @ a major university whereby all their kids go to FOR FREE for as long as they want, for as many credits as they want, for as many majors as they want, for as many advanced degrees they want

Wed, 11/04/2015 - 22:34 | 6751963 AMPALANCE
AMPALANCE's picture

As long as they don't question the Socialist doctrine. EVER.

Wed, 11/04/2015 - 22:24 | 6751914 VWAndy
VWAndy's picture

Dont worry main street will always welcome your stack. No matter what tptb tell you. The honest folks will always take real value in trade.

Wed, 11/04/2015 - 22:24 | 6751922 A Nanny Moose
A Nanny Moose's picture

File this under no shit, Sherlock

Wed, 11/04/2015 - 22:25 | 6751923 lasvegaspersona
lasvegaspersona's picture

Do it for the children...of savers...

...and not just  a paltry .25%...we need a full 1% and that is just for starters....

I dare you Janet.

Sadly we'll get nothing but words again. Equities will rally. The next cycle of BS will begin as the ever evolving life cycle of the endangered fiat currency completes another spin and the academic economist prepares to observe the the wonders of the mating habits of central bankers as they once again fuck everything they touch...nature at its most awesome....next on Discovery (of your downfall)

Wed, 11/04/2015 - 23:13 | 6752109 TheReplacement
TheReplacement's picture

I'll Raise you, let the rates float as determined by the market.

and Call.

Wed, 11/04/2015 - 22:25 | 6751924 lasvegaspersona
lasvegaspersona's picture

Do it for the children...of savers...

...and not just  a paltry .25%...we need a full 1% and that is just for starters....

I dare you Janet.

Sadly we'll get nothing but words again. Equities will rally. The next cycle of BS will begin as the ever evolving life cycle of the endangered fiat currency completes another spin and the academic economist prepares to observe the the wonders of the mating habits of central bankers as they once again fuck everything they touch...nature at its most awesome....next on Discovery (of your downfall)

Wed, 11/04/2015 - 22:37 | 6751974 AMPALANCE
AMPALANCE's picture

Should be at least 6-7%, rates historically followed inflation, Until the Central Planners and Bankers started their fiat Ponzi scheme in earnest.

Wed, 11/04/2015 - 22:26 | 6751935 SweetDoug
SweetDoug's picture




An-nn-nnd… Cue the robotic automation in the next 10 years for having to spend more of what you have less of on rent!

Anyone who hasn’t seen the food inflation, the energy inflation, the everything inflation is either telling the lie, or just such a low-information type, they deserve it.

•?•
V-V

Thu, 11/05/2015 - 09:14 | 6753026 Arnold
Arnold's picture

Don't forget your Health insurance is due next week!

Wed, 11/04/2015 - 22:27 | 6751939 PoasterToaster
PoasterToaster's picture

It took many years, but the mealy mouthed ones are finally trapped by their own rhetoric and lies.

Wed, 11/04/2015 - 22:30 | 6751942 AMPALANCE
AMPALANCE's picture

We know inflation is high, it's what they don't know/wanna admit. If all the economist are always wrong, and perpetually use bad data, why do we need economist? If a doctor was wrong 100% of the time, would they still be doctors?

 

 

Wed, 11/04/2015 - 22:36 | 6751969 One Solution
One Solution's picture

Why do we need economists? Target practice?

Wed, 11/04/2015 - 22:39 | 6751981 AMPALANCE
AMPALANCE's picture

With 50 cal. turrent guns? yes please?

Thu, 11/05/2015 - 01:48 | 6752510 AGuy
AGuy's picture

"We know inflation is high, it's what they don't know/wanna admit. "

Actuallly for the moment, Inflation has stalled. Commodity prices are falling (Copper, Oil, Steel) as China's economy has fallen into recession. Food prices might even begin to decline a bit this winter.

Odd that Yellen would suggest that inflation is getting worry some now, when it was a problem, oh for the past 10 years or more. The Fed is more likely to get serious with NIRP before it ever begins to seriously normalize rates.  If the Fed was a Singer,r they would been so off-key that the music would ended before the first line was sung.

 

Thu, 11/05/2015 - 06:51 | 6752788 Still Losing Money
Still Losing Money's picture

You mean the Fed is late to the ball game agian? say it isn't so.

Wed, 11/04/2015 - 22:29 | 6751945 Seasmoke
Seasmoke's picture

Look at the cost burden of NJ. Entire state is darker red than Hell. 

Wed, 11/04/2015 - 22:32 | 6751953 AMPALANCE
AMPALANCE's picture

And yet we have the some of the highest taxes, highest cost of living and largest government per capita.

Thu, 11/05/2015 - 09:25 | 6753064 Arnold
Arnold's picture

That's why your govnah is running for POTUS.

Wed, 11/04/2015 - 22:32 | 6751954 Seasmoke
Seasmoke's picture

Imagine that. A dual citizen lizard. Speaking out of both sides of his mouth. Go back to Israel you POS. 

Wed, 11/04/2015 - 22:34 | 6751961 papaswamp
papaswamp's picture

FYI... US debt jumped $380 Billion since 1 Nov. Now at $18.532 Trillion.
http://www.treasurydirect.gov/NP/debt/search?startMonth=11&startDay=01&s...

Wed, 11/04/2015 - 22:34 | 6751962 nmewn
nmewn's picture

lol...OMG...TPTB are going to go into epileptic seizures if "inflation targets" aren't met! If gasoline falls to fiddy cents a gallon people might actually go where they want to go and spend what they didn't spend on gas when they get there!

This is clearly a crisis.

People may be able to support themselves on minimum wage and reduce government outlays & taxation! Retirees don't have to eat catfood anymore! Good gawd!...the middle class might begin eating steak instead of hamburger again and ruining my sweet Buffy's grocery store trips in the Escalade!

Oh the horror! ;-)

Wed, 11/04/2015 - 22:42 | 6751996 AMPALANCE
AMPALANCE's picture

Not so fast, the Affordable Health Care tax has dibs on that newly acquired discretionary spending.

Wed, 11/04/2015 - 22:56 | 6752050 nmewn
nmewn's picture

They've always got "more important things" for you to spend your money on don't they?

What this world needs is moar do-gooder technocrats ;-)

Thu, 11/05/2015 - 09:32 | 6753070 Arnold
Arnold's picture

Giving the Gasoline away, you pay the tax.

 

http://www.pennlive.com/midstate/index.ssf/2015/01/pa_gas_taxes_are_high...

 

I do not believe taxes of any sort (including ACA) are considered inflation.

Wed, 11/04/2015 - 22:36 | 6751968 VWAndy
VWAndy's picture

Dont like the fiat games?

Sick of kissing banker ass?

 

Wed, 11/04/2015 - 23:05 | 6752083 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

How many in the 'red' areas will be homeless 5 years from now?

Wed, 11/04/2015 - 23:26 | 6752158 Niall Of The Ni...
Niall Of The Nine Hostages's picture

The mystery of the missing inflation is quite simple. The cost of everything that can be outsourced has plunged in real terms---including the cheap crap from China sold online that the Billion Prices Project make a show of keeping track of to cover the asses of government statisticIans (and get paid handsomely for the privilege). 

The prices of stuff that can't be outsourced has kept rising in line with the money supply, same as it always did. You can't get your hair cut in China, much less buy a house in Beijing and commute from there to a job in the US every day---assuming you still have a job.

Thu, 11/05/2015 - 00:31 | 6752337 scatha
scatha's picture

The rampant inflation is here and encompasses everything while being hidden via numerous gimmicks and lies.

Fed caught itself in his own web of lies about inflation and everything else.

And here is what's really going on in the economy and what true inflation really is:

https://contrarianopinion.wordpress.com/economy-update/

Thu, 11/05/2015 - 03:58 | 6752651 Debugas
Debugas's picture

there are two most general types of inflation (increase in prices):

1) consumable goods inflation - is caused by increase in income of general population through wages increase or welfare benefits increase or pensions increase or consumer credit expansion

2) assets inflation - is caused by money printing M1, M2, M3 (credit expansion included) and psychological perception of the rich people (who hold most of assets) that assets are worth more due to flood of fiat

Thu, 11/05/2015 - 04:21 | 6752669 toktomi
toktomi's picture

I cannot find any evidence for the "admission by Janet Yellen that 'no matter what' The Fed is raising rates in December".

A search of the alleged transcript of her appearance before the House Committee on Financial Services yields no hits.

Does anyone have a source for this allegation?

Thu, 11/05/2015 - 05:06 | 6752706 Aussie Battler
Aussie Battler's picture

Fed: 'we screwed some folks, real bad'

Thu, 11/05/2015 - 07:35 | 6752834 goldenbuddha454
goldenbuddha454's picture

Were it not for their stupid "Transitory" exclusion, we'd be seeing the real numbers.  The numbers that matter to the little people like food, energy, schooling etc...

Thu, 11/05/2015 - 08:02 | 6752857 Tortuga
Tortuga's picture

So, interest rate is 0 from the fed, minus the 6% members are paid on deposits. Add a negative interest rate to the already negative interest rate after the 6% is subtracted from 0, then you have a positve because you are adding two negatives. So by lending at a negative interest rate she is in effect raising interest rate.

That lady is a genus.

(Ie..above species and below family) as in not a genius, but a lowlife for youse spelling nazi's.

Thu, 11/05/2015 - 08:14 | 6752879 taopraxis
taopraxis's picture

Interesting article...too bad about that zero COLA for SS this year.

Face it, the numbers are whatever they want them to be and the chosen policies will be justified by cherry-picked so-called data. If they want to raise rates, inflation is high. If they want to cut rates, inflation is low. Heads they win, tails you lose, except...

There is a real economy somewhere out there. The number one indicator for me was the crash in the commodities sector that happened about a year ago. There has been no significant recovery. The dollar is strong, which is something that tends to happen during periods of global economic stress. Interest rates are rising due to rising credit risks except where the central banks are gaming the market. Gold is weak, which, manipulation aside, signals deflation.

Rents are high because markets are at bubble highs but elsewhere, prices are softer, especially for energy, which is huge, notwithstanding that it is always ignored when it is high and fueling inflation.

I disagree that the fed is desperate to hike. Quite the reverse is true, in my opinion.

As for the next recession, it is already here. Hiking to fight it would be stupid. The reason the Fed should have hiked, years ago, was to prevent the inflation that has blown these market bubbles and tipped the economy into recession by weakening consumers, exploding credit and pulling demand forward.

It is too late for the Fed. They've blown it. They've essentially lost control of the situation but they do not seem to know that, yet. The daily jawboning of the markets tells you they've got nothing. It is rather pathetic, actually.

 

Thu, 11/05/2015 - 09:18 | 6753014 Not if_ But When
Not if_ But When's picture

Well, if it even matters and whether or not a president is even truly relevant to the economy:

Bernie Sanders has repeatedly chastized Greenspan, Bernanke, and Yellen that they are totally and completely out of touch with the typical American citizen.  That they know not what their policies have done to the working class and what's left of the middle class.

The Fed is so out of touch that they can't even establish an accurate measure of inflation.  Inflation should basically be the interaction of costs and a person's ability to maintain their standard of living.  Instead, they've come up with some kind of nebulous creature of faulty and unreflective inputs created by bureaucrats with crazed adjustments.  They then utilize this "overview" with a complete bias towards the investor class and 1% who are minimally impacted.  (EX:  no COLA vs. Asset Appreciation).  

IMO, the FED is hesitant and confused because of the lack of impact of their money printing and their seven year "emergency" policies on inflation.  Well, they might actually see the impact if they measured inflation in a realistic manner.  If they correctly considered the factors described in this article and so many others.

Thu, 11/05/2015 - 09:18 | 6753039 Batman11
Batman11's picture

Has anyone told Central Banker’s the story of the boy who cried wolf?

There is a wolf ..... oh no, there isn’t

We are going to raise rates ..... oh no, we are not

I am going to send a copy of Aesop’s Fables to the BIS in Switzerland so all its directors can have a read.

Thu, 11/05/2015 - 10:08 | 6753218 El Hosel
El Hosel's picture

Depends on what your definition of "Is" and Inflation Is.... Double "Is's" is the only way to go in the "new normal", and make no mistake it all "is good" for stocks.

Thu, 11/05/2015 - 10:05 | 6753196 Conax
Conax's picture

It would seem to me that rising gold prices would signal just the inflation they are looking for, yet for some reason, they expend much effort stomping it down continually. 

They monkey hammer gold and silver as they whine for inflation.

These people are addled in the head.

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